You’ve driven your leased car for the past three years and you know it’s in good condition. Does it make sense to buy out your lease? Should you lease another car?

It can be difficult to know which decision makes the most sense for your circumstances. In this article, we’ll go through some questions you should ask to determine which option to choose.

How does your lease purchase option price compare to market pricing?

Every leased vehicle has a purchase option, which is a pre-determined price that the manufacturer has established the car is worth at lease-end. You have the option to purchase the vehicle for this price, plus a purchase option fee.

The next step is to compare this price to the market value of the car. You can estimate this by looking online for cars that are similar to yours in mileage, location, and condition. We recommend checking three to four sites to find a couple of close matches for comparison. Your Cartelligent agent can also help you find a fair estimate of the car’s current value.

Now that you know what a similar car is worth, you can compare that number to your purchase option price.

If your car is worth more than the purchase option price:

You have the opportunity to buy the car at a good value. If you like the car and you intend to drive it for at least a few more years, this could be a good choice for you.

If your car is worth less than the purchase option price:

Somewhat non-intuitively, this is a good thing—it indicates that you paid less over the course of the lease than you should have. Imagine you bought the car for $40,000 with a purchase option price of $25,000 and it is now worth $20,000. You paid $15,000 plus interest over the course of the lease. If the purchase option price had been the true value of your car, you would have paid $20,000 plus interest over the three-year lease.

If your vehicle’s current value is lower than the purchase option price, it is almost never a good financial decision to buy the lease out. To continue the example above, you’re paying $5,000 more than the car is worth to buy the lease out.

Most manufacturers do a very good job of estimating what the vehicle will be worth at this time. However, some will intentionally offer a high purchase option price in order to incentivize leasing which results in current values lower than the purchase option price. Occasionally, high market demand for a particular car will lead to greater resale value than the manufacturer anticipated leading to current values higher than the purchase option price.

How much longer do you intend to keep the vehicle?

One of the advantages to leasing is that you only pay sales tax on part of the vehicle’s price. In our example above, you’ve paid sales tax on the $15,000 difference between the price of the vehicle and its purchase option price. When you buy out the lease, you will need to pay sales tax on the remaining $25,000.

If you intend to keep the vehicle for more than a couple of years, this expense can often be justified. If not, you may be better served by leasing a new vehicle.

How will your loan payments compare to a new lease?

Manufacturers will often incentivize leasing by offering low-interest rates or high residuals. This means that when you go to a bank to secure a loan for the purchase option price, the higher interest rate could actually result in a higher monthly payment. It can be worthwhile to research what interest rates you can find and calculate what your new payments will be. Your Cartelligent agent can assist you with these estimates.

How much will maintenance and repairs add?

New cars require little to no investment in maintenance and repairs, but as the car ages, it will require more and costlier expenditures. It’s worth considering how much these will add to the price you’re paying for the car when deciding to buy out your lease.

What is the process to buy out a leased vehicle?

If you’ve decided that buying out your lease is the right decision your first step is to contact the leasing bank and let them know. Next, you should arrange for financing through a local bank or the same bank that held your lease. If your leasing bank is willing to facilitate the sale, you’ll be required to handle the DMV paperwork to transfer the title on your own. If the leasing bank is not willing to facilitate the sale, you will need to find a salesperson at the local dealership to help you finalize the transaction.

Whether you’re a first-time lessee or you’re returning your fifth leased vehicle, Cartelligent can make returning your current vehicle simple and efficient while getting you a great price on a new vehicle. Call our team of car-leasing experts at 888-427-4270 or get started today.